Structured Assessment 2017 Betsi Cadwaladr University Health Board

Transcription

1 Structured Assessment 2017 Betsi Cadwaladr University Health Board Audit year: 2017 Date issued: January 2018 Document reference: 285A

2 This document has been prepared as part of work performed in accordance with statutory functions. In the event of receiving a request for information to which this document may be relevant, attention is drawn to the Code of Practice issued under section 45 of the Freedom of Information Act The section 45 code sets out the practice in the handling of requests that is expected of public authorities, including consultation with relevant third parties. In relation to this document, the Auditor General for Wales and the Wales Audit Office are relevant third parties. Any enquiries regarding disclosure or re-use of this document should be sent to the Wales Audit Office at infoofficer@audit.wales. The team who delivered the work comprised Andrew Doughton, Nick Raynor, Alan Hughes, Dave Thomas and Mike Usher.

3 Contents Summary report Introduction and background 4 Key findings 5 Recommendations 12 Detailed report The Health Board continues to experience significant financial challenges and needs to develop a more transformational approach to savings schemes if it is to reduce its growing cumulative deficit 14 Some governance processes are strengthening, but the Board urgently needs to demonstrate a positive impact on the organisation s performance and finances 26 While the Health Board is making efforts to improve its use of resources, required changes are not yet keeping pace with the Health Board s increasing service pressures 37 Appendices Appendix 1 the Health Board s management response to the 2017 structured assessment recommendations 47 Page 3 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

4 Summary report Introduction and background 1 Our structured assessment work helps inform the Auditor General s views on Betsi Cadwaladr University Health Board s (the Health Board) arrangements to secure efficient, effective and economic use of its resources. 2 Our work in 2016 found the Health Board was laying some sound foundations to secure its future and the pace of change is increasing, although it remains in a challenging financial position and has considerable further work to do across a range of important areas. 3 As in previous years, our 2017 structured assessment work has reviewed aspects of the Health Board s corporate governance and financial management arrangements and, in particular, the progress made in addressing the previous year s recommendations. NHS bodies are facing growing financial pressures and challenging financial duties set out in the NHS Wales Finance Act (Wales) Therefore, we have also reviewed the Health Board s arrangements to plan and deliver financial savings. 4 We have also used this year s structured assessment work to gather evidence to support a pan-wales commentary. It will set out how relevant public sector bodies are working towards meeting the requirements of the Wellbeing of Future Generations Act (Wales) This commentary will be reported separately early in The findings set out in this report are based on interviews, observations at board, committee and management group meetings, together with reviews of relevant documents and performance and finance data. 6 The Health Board has been subject to substantial commentary on its governance arrangements, through our previous structured assessments and our joint work with Healthcare Inspectorate Wales (HIW), of which the latest follow up was published in June In 2015, the Welsh Government placed the Health Board in Special Measures 2. The Deputy Minister for Health issued a Special Measures Improvement Framework to the Health Board on 29 January 2016, setting out expected improvement milestones over the next two years. 7 Our structured assessment this year has not focused specifically on the steps included in the Health Board s special measures plan. However, we have commented in areas that are relevant to its special measures plan where those areas fall within the scope of the structured assessment review. 1 An Overview of Governance Arrangements Joint review undertaken by Healthcare Inspectorate Wales and the Wales Audit Office 2 Welsh Government statement in June 2015 Page 4 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

5 8 We are also aware that the Welsh Government has commissioned Deloitte LLP to undertake both a review of the Health Board s financial governance arrangements, and separately to examine capital planning arrangements at Ysbyty Glan Clwyd. On the latter, it is important to indicate that we have not undertaken any examination of these arrangements, either through structured assessment work, or otherwise. Key findings 9 The Health Board continues to find itself in an extremely challenging position, both in terms of its finances, and performance against a number of key national targets. The Health Board continues to evolve its corporate arrangements for governance, financial management, strategy development and workforce planning but these have not yet sufficiently enabled the Health Board to be where it needs to be with its finances and performance. The findings underpinning these conclusions are summarised below. Financial planning and management 10 We found that the Health Board continues to experience significant financial challenges and needs to develop a more transformational approach to savings schemes if it is to reduce its growing cumulative deficit. Financial performance 11 While the Health Board has a reasonable savings delivery track record, its savings approach is not sufficiently improving the overall financial sustainability and financial standing of the organisation. 12 Over the last five years, the Health Board has set relatively ambitious savings targets. In most years, the Health Board has been successful delivering against those expectations. Over the period between 2012 and 2017, the Health Board has set savings plans targets of 193 million and has achieved 192 million. However, there is: a high degree of variation in the success of individual savings plans, with notable over-delivery and non-delivery; and a trend of cost growth during both the and financial years which have to be countered by additional short-term saving schemes. 13 For in particular, the plan at the beginning of the year included a 35.4 million savings target and a predicted year-end deficit of 26 million. However as the year has progressed, a growth in costs became apparent which increased the year-end deficit forecast. In recognition of this significant issue, the Health Board has developed additional savings schemes but these do not go far enough to recover the financial position to meet the original plan. Moreover, there remain risks to the achievement of the revised savings schemes. This has resulted in a Page 5 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

6 challenging position where the forecast deficit has been formally revised from 26 million to 36 million. This increases the three-year deficit for from 75.5 million to 85.3 million. As such, the Health Board will not meet its requirement to spend within allocation as set out in the NHS Finance Act (Wales) 2014 for the period The rolling nature of requirements set out in this Act also means that the Health Board is highly unlikely to recover its three-year cumulative position for at least another two years. Financial savings planning and delivery arrangements 14 The Health Board s corporate arrangements for savings planning and delivery are becoming stronger, but they need to be more focused on longer-term sustainability. There is opportunity to increase the focus on service transformation, improving value and productivity, efficiency and reducing waste. 15 Corporate leadership and management of savings has been subject to numerous changes in recent years. Over the last three years, the Health Board has used an external consultancy, appointed an interim Director of turnaround and continued to be supported by a minimally staffed Programme Management Office (PMO). Revised accountability arrangements for the PMO team and a possible merging of this team with the improvement team are now broadening the focus and create the potential for extra capacity. We also found that finance department savings planning support has worked well over the last 12 months and the executive led programme review groups have helped provide structure and accountability in many instances. However, while available if specifically requested, change management, workforce planning, procurement and informatics support for saving schemes, was not systematically provided. We understand that Health Board is starting to address these issues as part of savings planning approaches. The Health Board also uses data and benchmarking which helps to identify scope for better efficiency and the potential for cost reduction in many areas, but this is not yet used systematically at an operational level to develop savings targets and plans. 16 While the Health Board is drawing on previous years experience to strengthen its approach to the management of savings schemes, these are not well integrated into the Health Board s annual operating plan. At present the Health Board s savings approach is predominantly based on an annual cycle, placing too great a reliance on short-term and non-recurrent savings. It is also impacted by growth of in-year costs, which is increasing the focus on short-term solutions. There is a clear desire in the Health Board to embrace prudent healthcare 3 and value based healthcare 4 principles but they currently are not well embedded into service planning. It is encouraging that the Health Board is recognising the areas identified 3 Achieving Prudent Healthcare in Wales 4 NHS Confederation Value Based Healthcare Page 6 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

7 above, and has recently created a value steering group, chaired by the Medical Director, to help take aspects of this agenda forward. Financial savings monitoring 17 Financial savings monitoring and scrutiny arrangements are strengthening as a result of lessons learnt from previous years and significant financial risks faced in the current year. 18 The Health Board s approach for monitoring savings delivery at a management level is well-established. The PMO monitoring group oversees progress of financial savings plans and receives clear information on savings schemes and this information continues to improve. While overall arrangements for monitoring are relatively sound, the impact of the arrangements on the overall financial position are more of a concern. 19 Board and committee performance monitoring of savings has been sufficient to discharge a general duty to oversee the impact of financial savings. However, until recently, there has not been sufficient detail provided to enable effective challenge, support, escalation and remedial action at Board or committee level. From August 2017, the Finance and Performance Committee has started to receive more indepth and specific reports on a division or thematic level. This has helped strengthen the focus and rigour of scrutiny. The Board has also set up a Financial Recovery Group. This is providing opportunities to strengthen oversight and scrutiny of savings plans, but this group needs to rapidly demonstrate strengthened scrutiny and a positive impact on the financial position. Progress in addressing previous structured assessment recommendations on financial planning and management 20 In 2016, we recommended that the timeliness of financial reporting to the board needed to improve. This has been achieved through verbal briefings and presentations to in-committee and other Board sessions. The recently established Financial Recovery Group is also helping to provide regular oversight on the organisations finances. From January 2018 onwards, the Board has also brought forward its meetings to accommodate improvements in the timeliness of finance and performance meetings. Page 7 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

8 Governance and assurance 21 In reviewing the Health Board s corporate governance arrangements, we found some governance processes are strengthening, but the Board urgently needs to demonstrate a positive impact on the organisation s performance and finances. The reasons for reaching this conclusion are summarised below. 22 Our observations of the Board and its committees during 2017 shows that they are well-administered and conduct their business properly. This includes a planned cycle of business, varied agenda and transparency in public reporting. While there is a notable commitment to improve, the Board needs to strengthen decision making with a greater focus on affordability, particularly when approving plans and proposals. 23 Governance structures are well administered, but there are opportunities for further improvement and re-shaping of terms of reference of the Finance and Performance Committee. We continue to note good inter-relationship and coordination between the Board s committees through the formal Committee Business Management Group, and more informal meetings of the committee chairs. We have identified improvement in the function of the Strategy, Partnerships and Population Health Committee and Audit Committee. We also recognise the progress that the Health Board is now making on its Board Assurance Framework and assurance mapping. 24 We have however highlighted some areas where the Health Board will need to either strengthen its governance process or determine the impact of its arrangements. This relates to strengthening the flow of assurance between the officer led Quality and Safety Group and the Quality, Safety and Experience Committee. We first identified this issue in We also identified as part of this year s work, the opportunity to strengthen the clinical audit approach to better target quality priorities and risks as well as provide assurance to the Quality, Safety and Experience Committee. 25 We found that the Finance and Performance committee has a clear agenda with a positive contribution of the independent membership. We also note recent strengthening in the style of scrutiny, which needs to continue. However, there is a significant demand on the committee given the increased scrutiny and focus that is needed on finance and performance within the Health Board. The committee is overseeing a deteriorating financial position, worsening of key aspects of performance and some key capital issues and risks. Given that it also has responsibilities in other key areas, notably workforce and informatics, there is a concern that the committee s current remit is too broad to allow it to adequately focus on some of the key challenges that the Health Board is facing. 26 Whilst performance management arrangements are in place within the Health Board, these have not prevented a deterioration in performance in a number of key areas within the national delivery framework. We have identified worsening performance relating to patients waiting on the referral to treatment pathway, the follow-up outpatient waiting list and those waiting for unscheduled care. We Page 8 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

9 understand that there has been additional targeted investment, made available from November 2017 onwards, and aimed at improving performance. 27 The Health Board has made minor changes to its organisation structure during the year. This included an area that we have been concerned about for some time relating to Executive leadership of the concerns/putting things right team. Those changes are starting to have positive affect. 28 The Health Board is demonstrating that it is taking a proactive approach in preparing for the new General Data Protection Regulation requirements. However, it also needs to ensure that it improves the timeliness of responses to statutory information access requests. Progress in addressing previous structured assessment recommendations on governance and assurance 29 The Health Board is in the process of addressing the recommendations made last year in relation to governance and assurance. Progress is summarised below relating to recommendations made last year the following areas: Board development programme The action is complete. The Health Board adopted a thematic focused board development agenda throughout Assurance mapping Original target date set as ongoing. Work to implement the assurance map will need to align to timeframes for strategy and planning to ensure it aligns to agreed objectives. Learning lessons and putting things right Original target dates March to June 2017 and action remains in progress. The new accountability arrangements for the central term are starting to take effect. New systems and processes are developing, but there remains more to do to ensure lessons are effectively learnt and consistently applied. Ward to board culture Original target dates December 2016 to May Action remains in progress. New systems and processes are developing, but there is a need for further improvement. Other enablers of the efficient, effective and economical use of resources 30 While the Health Board is making efforts to improve its use of resources, required changes are not yet keeping pace with the Health Board s increasing service pressures. In reaching this conclusion, we reviewed aspects relating to strategy and planning, change management, workforce arrangements, use of estates and informatics. 31 The Health Board continues to have a clear programme of public engagement and a track record of gaining a wide representation of community groups. Alongside the general engagement work, the Health Board plans targeted engagement activity Page 9 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

10 where it is considering making specific changes. Once the Health Board has progressed its planning as part of its preparation for publishing its Living Healthier Staying Well strategy and IMTP, it will then need to decide whether it formally consults. This will depend on the extent of service change proposals. 32 The Health Board has continued with its Living Healthier Staying Well strategy development. It is engaged with the four North Wales Public Service Boards and development of well-being assessments, the North Wales population assessment and has developed its own local needs assessment. The Health Board has identified the further actions required for development of its IMTP from October 2017 onwards. Overall, the Health Board has progressed its strategy and planning development. It will however, need to ensure sufficient clarity in its plans to help provide an effective platform for change and a financially sustainable future. 33 Change management capacity and capability is an area that has been an issue for the Health Board for some time, and we have commented on the need to strengthen its arrangements since The Health Board attempted to recruit a director of transformation. Unfortunately, this has not resulted in an appointment, and the Health Board has needed to utilise interim arrangements. We have also seen a number of changes over this time including a PMO, Programme review groups and service transformation groups but as arrangements have developed, they also have become complex, with differing structures and areas of focus. The Health Board needs to ensure that it puts in place arrangements that bring together in a cohesive and structured way, its corporate change management arrangements as well as creating effective change capacity and capability within the divisions. 34 While aspects of workforce management are reasonably effective and setting a positive tone, there remain some significant issues including reliance on a temporary workforce, recruitment challenges and low levels of clinical engagement. There are a number of positive attributes to the way the Health Board is managing its workforce. Workforce performance measures show that the Health Board performs well in some areas such as sickness absence, and compares well to other bodies in Wales. Initiatives such as the Health Board s step into work and Project SEARCH programmes are offering access to work experience for people in the community facing disadvantage. The Board supported and approved the staff engagement strategy in January The strategy has a broad focus and includes work on culture, building reflective learning improvement skillsets, ward leadership, wider leadership capability development and staff recognition and awards. 35 However, there also remain a number of significant workforce challenges. Since 2011, reliance on agency staff has been worsening with agency staffing costs reaching a peak of 45 million in although there is evidence to indicate that costs have started to reduce during Recruitment also remains a significant challenge particularly for hard to fill specialist areas. Given these challenges, the Health Board will need to adopt a more tactical approach to recruitment to improve the appeal to clinical staff. In addition, medical and allied health training has not sufficiently met the Health Board s staffing needs. This Page 10 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

11 specifically relates to converting initial training numbers requested at an all Wales level into permanently employed north-wales based staff over the medium to longterm. This is an issue that will require close working between the Health Board and a number of stakeholders including the Welsh Government, the deanery and other South Wales based training partners, WEDS, and local training partners in North Wales and North West region. 36 We also considered overall management capacity. We noted that the Executive Directors can be drawn into operational management issues, which is indicative of a wider need to strengthen the breadth and depth of senior management expertise below executive director level. Medical engagement and leadership has also been a significant issue for the Health Board. This area continues to require effort and we understand that the Medical Director is leading work to help strengthen arrangements. 37 We are increasingly concerned about the fragility of the senior management structure in the Mental Health division. Sickness absence has affected the continuity of senior leadership and is placing increasing pressure within that division and on senior management. The Health Board has put in place interim senior management arrangements to stabilise the existing leadership team. 38 Restructuring of the estates department resulted in some improvement, but the Health Board is struggling to allocate sufficient resources to estates and lacks an overall strategy to tackle high-risk areas. The Health Board currently has an estates portfolio valued at around 420 million. It also has the highest backlog maintenance in Wales on a risk-adjusted basis valued at 40.1 million 5. This should reduce with new and ongoing building work and redevelopment projects, but will remain a significant challenge for the Health Board because of the age profile of its estate. The Health Board does not currently have an estates strategy but anticipates that it will be published by autumn 2018 after publication of the Health Board s strategy and plans in April At present though, the absence of a strategy makes it more difficult for the Health Board to make decisions on capital, such as disposal of estate or prioritisation and approval of new capital projects and works. 39 The Health Board is improving its use of technology, but constrained resources may affect the extent that technology is used to support service efficiency. The Health Board developed its Informatics Operational Plan that sets the objectives and priorities for the current year. The Health Board s informatics department has historically seen a constraint in funding and is attempting to balance its resource and focus across operational requirements and support of new initiatives, systems and developments. This may limit the extent that the Health Board can use technology to support and enable savings and efficiencies in other areas. 5 NHS Estates, A risk-based methodology for establishing and managing backlog Gateway reference 4102, TSO, Page 11 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

12 Progress in addressing previous structured assessment recommendations on use of resources 40 The Health Board is in the process of addressing the recommendation made last year and in 2015 in relation to use of resources. Progress is summarised below relating to the following areas: Strategy and planning, delivery of plan within timescales Original target date November Action remains in progress as the determinant of success is the approval of corporate strategy and plans in March Change management capacity and capability The recommendation made in Action remains in progress because the Health Board continues to rely on consultancies and needs to build its overall capability for change. Recommendations 41 Recommendations arising from the 2017 structured assessment work are detailed in Exhibit 1. The Health Board will also need to maintain focus on implementing any previous recommendations that are not yet complete. The Health Board s management response detailing how it intends responding to these recommendations will be included in Appendix 1 once complete and considered by the relevant board committee. Exhibit 1: 2017 recommendations 2017 recommendations Financial savings R1 R2 R3 R4 R5 R6 Embed a savings approach based on targeting savings at areas where benchmarking demonstrates inefficiencies, to deliver longer-term sustainability. Identify where longer-term and sustainable efficiencies can be achieved through service modernisation and application of approaches such as value based healthcare, productivity improvements and invest to save. Ensure that budget holders receive the necessary specialist support from enablers such as the Programme Management Office, workforce, procurement and informatics teams when developing and delivering their savings plans. Ensure that financial savings assumptions are fully integrated into annual and medium-term plans so that savings efficiencies form part of service modernisation. Develop an approach for providing assurance to the relevant committee where delivery of saving schemes may affect service quality or performance. Further strengthen the corporate monitoring approach to ensure it supports and enables savings plans which are slipping, and encourages longer-term savings and efficiency programmes. Page 12 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

13 2017 recommendations Governance arrangements R7 R8 R9 Ensure that plans presented to the Board include costed options where applicable, and contain sufficient information to indicate to the Board that they are affordable in the short, medium and long-term. Review the remit of the Finance and Performance Committee with particular consideration to its breath of its current responsibilities. Build on the Health Board s programme of clinical audit to ensure it: a) aligns with quality strategy priorities and risks; b) sets out patient/quality outcomes or impact as a requirement of audit planning to help it understand the value that clinical audit is contributing; and c) informs the Quality, Safety and Experience committee with clear and focussed assurance reports. Change management R10 Consolidate, strengthen and sufficiently resource the change enabling capability of the organisation. Specifically the Health Board should: a) ensure financial savings are embedded into change programmes and plans; b) strengthen capacity and capability within centrally managed change programmes; c) strengthen change enabling capability and capacity in divisions; d) ensure workforce, informatics and other enabling resources are integral to change delivery arrangements; e) ensure clinical engagement and leadership are integral elements within change programmes; and f) strengthen accountability for progress against plans, including the annual operating plan and when developed, the Integrated Medium Term Plan (IMTP). Workforce management R11a Work with educational partners, research partners and internal stakeholders to shape new job roles to increase the attractiveness of the job offer as part of clinical staff recruitment. R11b Increase tactical recruitment capacity to support delivery of R11a. R12 Strengthen middle and senior management skills to provide sufficient breadth of business and financial capability and to support succession planning. Informatics R13 Increase investment in technology where this clearly will result in a greater level of returned cashable efficiencies or transformational economies. Page 13 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

14 Detailed report The Health Board continues to experience significant financial challenges and needs to develop a more transformational approach to savings schemes if it is to reduce its growing cumulative deficit 42 Our structured assessment work in 2017 considers the actions that the Health Board is taking to achieve financial balance and create longer-term financial sustainability. This year s work has had a specific focus on the Health Board s arrangements for planning and delivery of financial savings. 43 We have not considered detailed approaches for individual saving scheme planning and delivery, although we have looked explicitly at medicines management and informatics saving schemes to help inform our views on the overall the effectiveness savings planning and delivery arrangements in the Health Board. In addition, we have reviewed progress made in addressing previous recommendations relating to financial management. Our findings are set out below in the following structure: impact of approaches to savings on the overall financial standing of the organisation; arrangements in place to plan and deliver savings; monitoring and scrutiny of savings; and progress against recommendations made in last year s structured assessment. While the Health Board has a reasonable savings delivery track record, its savings approach is not sufficiently improving the overall financial sustainability and financial standing of the organisation 44 Each year, the Health Board is allocated revenue by the Welsh Government to provide the resources for the Health Board to pay for locally provided and contracted healthcare services for its resident population. This allocation is known as the Revenue Resource Limit (RRL). Each year there are increases in the RRL allocated at the beginning of the year by the Welsh Government. These increases in revenue help to address inflationary costs of healthcare 6. This includes growth in pay costs, medication costs, and increasing demand for services. 45 The Health Board forecasts its planned expenditure, which it sets against the financial allocation and other income streams. In each of the last three financial years, this has left a resource gap that the Health Board addressed in part through savings and cost control measures. However, these measures alone have not been sufficient to meet this overall resource gap with the consequence that the Health Board has operated to a planned financial deficit position at the end of the year. 46 As a result, the Health Board breached its resource limit by spending 75.9 million in excess of the 3,991 million that it was authorised to spend in the three-year period The following conclusions describe the effectiveness of past saving performance, and the overall impact on the financial standing of the organisation. 6 Economic assumptions 2016/17 to 2020/21 Page 14 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

15 Savings, million The Health Board has a reasonable track record of delivering the savings targets it has identified 47 Over the last five years, the Health Board has set relatively ambitious but generally achievable savings targets. In most years, the Health Board has been successful delivering against those expectations (Exhibit 2). Over the period between 2012 and 2017, the Health Board has set savings plans targets of 193 million, and has achieved 192 million. The Health Board also increases the savings target during the year to help counter unplanned growth in service costs. This growth in costs can occur for a range of reasons including, for example, winter pressures and flu or greater need for specialist out of county placements. Exhibit 2: summary of saving scheme delivery The chart shows the trend of achievement of saving schemes over the last six financial years. The grey columns show savings planned at the beginning of the year (planned at month 1) versus savings reported (red columns) as delivered at the end of the year Planned mth 1 Savings delivered Source: Savings reported by the Health Board in its monitoring returns to the Welsh Government There was a high degree of variation in the success of savings plans for In , the Health Board s total resource gap was 60.3 million. To help address the gap, it agreed a savings plan that totalled 26 million at the start of the year. The Health Board identified 301 saving schemes to help it meet its annual savings target. Exhibit 3 provides summary analysis prepared by the Health Board on over and under-delivery against its saving schemes. 49 By the end of the financial year, the Health Board revised its savings target from 26 million to 30.6 million. It over-delivered against its savings plans by achieving 33.5 million in savings. While it is positive to note the over-delivery against savings plans, there was a high degree of variation in the success of savings approaches. The overall position was helped by some significant overachievement in a small number of schemes and six unplanned schemes providing 1.2 million in Page 15 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

16 savings. The scale of over and under-delivery indicates that the Health Board could further improve its savings planning and delivery arrangements. Moreover, because of growth in service costs during the year, the net effect of over-delivery of savings and increase in costs meant that even though the Health Board over-achieved its savings, it only marginally reduced its planned deficit. Exhibit 3: summary of saving scheme delivery The table describes the performance against saving schemes at the end of the financial year. Category Number of identified schemes Sum of planned schemes ( ) Sum of actual scheme delivery ( ) Sum of differences between actual and planned savings ( ) Identified savings schemes overdelivering by 50,000 or more 33 6,629,474 18,213,684 11,584,210 Identified savings schemes overdelivering by 49,999 or less 35 1,912,351 2,494, ,285 Identified savings schemes achieved exactly the planned amount (+/- 10) 88 4,876,827 4,876, Identified savings schemes underdelivering by 9,999 or less , ,078-46,281 Identified savings schemes underdelivering by 10,000 to 49, ,340,042 1,886, ,724 Identified savings schemes underdelivering by 50,000 or more 30 9,244,532 4,436,856-4,807,676 Identified savings schemes delivering 0 (nil) savings 76 5,108, ,108,091 Unplanned savings schemes 1,152,839 1,152,889 Total ,638,677 32,389,377 1,750,701 Source: Betsi Cadwaladr University Health Board The Health Board s savings schemes do not bridge the entirety of its resource gap and the position for is looking very challenging 50 In , the Welsh Government s RRL allocation to the Health Board increased by 2% to 1,383 million. The Health Board has determined its other income streams and set this against its total forecasted expenditure. This created a total resource gap of 61.4 million. The Health Board originally identified a 30 million deficit, but following discussions with the Welsh Government reduced this to 26 million. This resulted in a savings requirement of 35.4 million. Page 16 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

17 Million 51 By November 2017, the Health Board overspent against its budget trajectory. It therefore has introduced additional financial recovery measures. However, even with this increase stretch, the Health Board has revised its overall forecast annual deficit for the year upward from 26 million to 36 million. While the Health Board has allocated the new savings requirements across divisions, delivery of the savings schemes presents a risk, particularly as a high proportion are required at year end, over the winter pressures period (Exhibit 4). Exhibit 4: summary of saving scheme delivery performance and forecast The chart shows the trend of achievement of saving schemes at month 8 of the financial year alongside forecast thereafter Savings Recovery Savings target Source: Betsi Cadwaladr University Health Board 52 The Health Board has implemented additional financial recovery measures, processes and controls. It is positive to note that the Health Board was already aware of and is strengthening all key areas of concern relating to central savings arrangements that we have identified during the course of our work. However, as a result of the recent deterioration in financial performance, the Health Board: faces a risk of not achieving its revised savings target; and will not achieve its agreed deficit plan, ie to achieve an agreed deficit of 26 million without effective remedial action or additional financial allocation. As of November 2017, the annual forecast deficit has been revised to 36 million. 53 As part of NHS Finance Act (Wales) requirements, the Health Board must spend within its financial allocations over a rolling three-year financial period. As identified previously, the Health Board 7 National Health Service Finance (Wales) Act 2014 Page 17 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

18 Total deficit million has developed savings approaches but these do not bridge the entirety of the resource gap. The Health Board s approach to savings planning is helping to contain the overall growth in its expenditure. However, it is not significantly reducing its planned deficit within a given year, or cumulative deficit over a rolling three-year period (Exhibit 5). For example, the Health Board s three-year deficit position for the period is expected to be 85.3 million. The Health Board will not meet its requirement to spend within allocation as set out in the Act for the period Exhibit 5: three-year cumulative financial positon (deficit) The chart shows growth in the forecast three-year cumulative deficit financial position of the Health Board, after income, costs and savings achieved are considered Source: Betsi Cadwaladr University Health Board The Health Board s arrangements for savings planning and delivery are strengthening, but its approach has been too focused on in-year cost control. There is opportunity to increase the focus on service transformation, value, improving value and productivity, efficiency and reducing waste 54 All Health Boards and Trusts in Wales have to identify savings to be able to aim to spend within their revenue allocation. For many bodies, growing cost pressures make it increasingly difficult to set a balanced budget, even with annual uplifts in funding. Traditional savings approaches across Wales have focused on cost control measures, procurement savings, recruitment freezes and changes in staff skill mix or grade mix, to name a few. Once these approaches have been exploited, health bodies will be required to think differently, because cost-cutting approaches will have diminishing returns. This section of the report considers the corporate arrangements for planning and delivering savings. We have not reviewed the design, accountability, risks or performance of individual saving schemes. Page 18 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

19 Corporate management of savings has been subject to numerous changes in recent years 55 In the Health Board, there has been a lack of continuity for the corporate management of saving schemes. This has affected the nature, scale and effectiveness of savings approaches adopted. Over the last three years, there has been reliance on an external consultancy to support programme management and a Programme Management Office (PMO) function, albeit one that was minimally staffed. The Health Board has also been unable to recruit substantively to the post of Turnaround Director, and has needed to fill this post on an interim basis. Collectively this contributed to a less than optimal and changing corporate approach to the corporate leadership and management of financial savings and one that historically focused more on reviewing savings, than enabling them. 56 In January 2016, the Finance and Performance Committee received a paper on options for the PMO, with a preferred option to create internal project management capacity in the Health Board. The pace of implementation of the new arrangements appears to have been an issue. However, new PMO accountability arrangements and changing the focus of the PMO are starting to create a positive reshaping of this important function. This includes a clearer remit for the team and proposal to consolidate the PMO and service improvement team as a coordinated resource to build team capability and development of policy, systems and process. The aim of these changes is to allow the team to better enable delivery of savings in the future, than it has been able to do in the past. 57 To help structure the change and savings approaches, the Health Board has set up a number of programme review groups. These groups have been in place for over a year and all have executive level ownership. The distribution of responsibilities for savings through these programme review groups is better spread across the Executive team than in the past. However, the Board need to keep the arrangements under review to ensure they too help enable and facilitate improvement in the management and delivery of savings. Arrangements to help budget holders achieve target savings have been strengthened but there is a need to make this support more proactive and systematic 58 The Health Board has recognised that senior management and service-level budget holders do not always have the necessary capacity and capability to plan, develop and deliver saving schemes and is providing additional support. 59 During , the Health Board set up arrangements to support budget holders through the alignment of finance directorate staff to divisions and services. We understand that this process of financial support has worked well over the last 12 months. However, there were concerns raised that past approaches adopted by the external consultancy and limited number of PMO staff did not sufficiently support the delivery of changes required to achieve savings. This is an area that the new PMO has sought to address when reshaping and refocusing its team. We also understand that the workforce planning and OD teams, informatics department and the procurement team are proactively engaged when specifically called upon to provide support. However, this support was not systematically provided during the savings planning stages, with the result that not all savings schemes benefited from the input of required expertise at the initial planning and design phase. The Health Board is seeking to address this as part of the planning cycle. Page 19 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

20 60 The Health Board has used Welsh Government s Invest to Save scheme 8 funding on two areas only in : electronic patient boards, and voluntary early release scheme (VERS). While we expect that use of VERS created a tangible cash benefit, the monitoring reports on the patient board implementation does not indicate whether a cashable efficiency was achieved. The concept of invest to save could be more widely used to help pump-prime required improvements, such as technology investments that result in cashable efficiency. Data on opportunities for cost improvements does not appear to be informing the identification and design of savings plans within the Health Board 61 As identified in the previous section, the savings planning approaches in resulted in a large number of saving schemes. The Health Board introduced measures to encourage transformation in with mixture of transformational and transactional savings. However, the transformational aspects of these did not deliver the required savings. Therefore, in the Health Board refocused its approach on in-year cost control and transactional savings. While the number of schemes has reduced from 301 in to 215 in , the number of schemes is likely to make local and central management of these schemes challenging. We also identified a number of low value schemes, and concerns were raised during interviews that the level of project administration required for these schemes was disproportionately high when considering the relatively low value of the savings likely to be achieved. This is now being addressed. 62 It is important that all health bodies across Wales understand the extent of inefficiency in the organisation. The Health Board has undertaken some analysis using Albatross benchmarking 9 to inform the finance team and budget holders on savings and efficiencies potential to help focus savings planning. This analysis provides reasonably detailed data on cost improvement opportunity. It is not clear, however, how this intelligence is used to inform identification of savings targets at an operational level, as we understand that the Health Board applied a uniform 3% savings target across the Health Board in The approach for allocation of savings in includes 0.5% cost avoidance but also provides a little more flexibility through 2% savings required from Area Teams and Hospital Teams with a further 1% as a shared target. This provides some limited option to protect services in the community that prevent growth in demand in the acute setting. The other service and corporate areas have a 3% target. 63 When constructing savings plans, it is important to consider the balance between, and effect of, recurring and non-recurring saving schemes. A greater focus on recurring and transformative schemes should make the budgetary pressure lower in following years. We found that of the total savings identified in , 43% of these were non-recurring. When looking at the specific savings category of pay costs, 53% were non-recurring (Exhibit 6). This raises concerns that savings are not sufficiently built into service re-design to make them financially sustainable in the future. 8 Welsh Government Invest to Save Invest to Save Patient Cost Benchmarking Page 20 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

21 Savings, million 64 The above findings indicate that transformational recurring savings are not a strong feature of savings planning. The Health Board needs to develop a more sophisticated approach to the identification and design of service plans, applying appropriate data and intelligence to identify where efficiency opportunities exist. 65 If the Health Board is going to demonstrate a continued trajectory of reduction in planned deficit over a number of years, there will need to be less reliance on non-recurring cost cutting measures and more focus on creation of a sustainable service models through: value based healthcare; tackling unwarranted variation in referrals and clinical pathways; challenging the fitness for purpose of existing models of care; significant and persistent attention on enhancing productivity; and prevention activity, but ensuring that this is delivering the required financial and quality outcomes. 66 It is encouraging that the Health Board is recognising the areas identified above, and has recently created a value steering group, chaired by the Medical Director, to help take the agenda forward. This has the potential to complement the on-going work in relation to transactional efficiency savings within the Health Board. Exhibit 6: split between recurring and non-recurring savings achieved in The chart shows high reliance on non-recurring savings, particularly in the area pay where non-recurring savings totalled almost 6.9 million Pay CHC/FNC Medicines Mgt Non-pay Commissioned services Primary Care Recurring Non-recurring Source: Savings reported by the Health Board in its monitoring returns to the Welsh Government Page 21 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board

22 67 There is a clear focus by the Health Board on development of annual approaches to development of saving schemes, but a lack of savings planning over the longer-term. Our evidence also indicates that the burden of savings delivery is weighted toward the last six months of the financial year. We believe these approaches are resulting in: lack of adoption of schemes that would otherwise deliver efficiencies in the longer term; lack of emphasis on sustainable efficiencies through service modernisation; financial and performance pressures coming together during the last six months of the year; schemes which are considered undeliverable within the year and then written-off; and lost opportunity for recurring savings. 68 The Health Board has indicated that it was already aware of these, using lessons from previous years and had already started to strengthen its arrangements, including: processes to reduce bureaucracy and the burden on budget holders for the management of low value schemes and transactional saving schemes under the value of 50,000; consolidating schemes into more meaningful programmes (albeit this will take some time as legacy schemes remain in place for the current year); strengthening project management on the higher risk schemes; increase focus on the proportion of recurring schemes; strengthening analytical capabilities in the PMO and service improvement team; planning savings on a rolling multi-year approach and spreading savings more equally within a financial year; implementation of an electronic system to streamline project management administration, analysis and progress reporting; and focusing on lead indicators that give an early warning of savings delivery risk. Whilst there is evidence that the Health Board is drawing on previous years experience to strengthen its approach to the management of savings schemes, such schemes are not well integrated into operational plans 69 All health bodies are required to develop a three-year integrated medium term plan (IMTP). Each year the Welsh Government sets out planning guidance to help inform the basic requirements of the plans. The Health Board has an approved Annual Operating Plan (AOP) in lieu of an IMTP, which it is currently developing. The AOP contains a short section on finances, including overall forecast cost pressures and inefficiencies for a 12-month period. 70 The AOP identifies the total savings requirements, the planned deficit in the current year, cumulative financial position and identifies that the plan is not fully funded. While this information is provided, it is appended to, rather than integrated into, the wider elements of the AOP. This makes it difficult to understand whether achievement of the deliverables that are identified in the plan will have a positive, neutral or negative affect on finances. Irrespective of this lack of clarity, and the fact that the plan was not fully funded, the Board received and adopted it. Page 22 of 60 - Structured Assessment 2017 Betsi Cadwaladr University Health Board